Financial services compliance is a dynamic target with extreme consequences for non-compliance. For financial services firms, there is absolutely no room for error. Firms must remain vigilant to ensure they meet their obligations under a growing set of laws, regulations, and standards.

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The Intersection of Financial Services Compliance & Technology

The Compliance Landscape for Financial Services

Highlighted below are several of the most critical regulations and standards that must be met by the financial services sector:

• FINRA

The Financial Industry Regulatory Authority (FINRA) is an independent body that oversees the brokerage community, assisting both investors and firms. Its primary goal is to maintain a safe and fair market. To achieve this, FINRA regularly updates its rules in response to global market changes. A significant focus of these regulations is on advanced cybersecurity measures. These standards aim to guard against cyberattacks, identify system breaches, and establish plans for business continuity and breach responses.

• SEC

Financial firms must adhere to regulations set forth by the Securities and Exchange Commission (SEC). The SEC promotes fairness, transparency, efficiency, and compliance of all publicly-traded companies in the U.S. Financial firms are required to comply with the SEC’s Financial Reporting Requirements, which include annual and quarterly reporting as well as other periodic filings. Financial firms must also adhere to SEC governance and risk management standards, such as cyber risk policies, identity theft prevention plans, data security processes, insider trading safeguards, and more.

The SEC Chair, Gary Gensler, recently expressed his support of the Office of Information and Regulatory Affairs Fall 2022 Unified Agenda of Regulatory and Deregulatory Actions, saying the agenda “reflects the need to modernize our ruleset, moving deliberately to update our rules in light of ever-changing technologies.”

• SOX

First passed in 2002, the Sarbanes-Oxley Act (SOX) was established to protect individuals by increasing transparency in the financial services sector and requiring formalized checks and balances for individual entities. In today’s world, SOX compliance is aimed at limiting access to internal systems that contain confidential or financial data. Fortunately, SOX internal controls are also solid business practices that can enhance your firm’s cybersecurity risk profile and reduce the threat of insider attacks.

• Due Diligence Requests (DDQ)

Compliance with investor due diligence requests (DDQs) has become more and more complex as the Financial Services industry grows. DDQs typically involve detailed information about financial operations, accounting practices, and related risk factors. Responding to these inquiries can be difficult, but it’s necessary in order to maintain regulatory compliance and build trust with investors. Financial services firms need to develop a reliable system for tracking and responding to DDQs quickly and accurately, as well as an audit trail of the communication process to prove compliance.

• Cybersecurity Insurance

Cyber insurance carriers have expanded their compliance requirements and increased their schedule of audits to ensure that firms have robust controls in place. These audits assess security protocols, policies and procedures, disaster recovery plans, and more. Financial services firms must plan ahead for these inspections by having the right personnel prepared with well-documented processes and systems to prove compliance. Additionally, firms should have an external cybersecurity partner who can provide executive-level support to ensure the audit is successful.

Cybersecurity & Compliance: What’s the Difference?

Security and compliance are often mistakenly assumed to be synonymous, yet they are, in fact, distinct. Security and compliance are both essential, yet their purposes vary. While security is meant to protect data and infrastructure, compliance serves as a means of meeting legal or regulatory obligations.

Compliance and security have similar objectives around managing risks and securing sensitive data and systems but have different processes and workflows to accomplish these goals. Put simply, compliance is the act of meeting contractual or third-party regulatory requirements by adhering to set guidelines and standards. On the other hand, security requires implementing effective technical controls in order to safeguard assets from cyber attacks.

Both are critical for the financial services sector.

Solving Compliance Now & Into the Future

As we move into 2023, financial services firms face an evolving landscape of stricter and more comprehensive regulations. To navigate this, it’s imperative for these firms to stay informed and adapt. They should invest in the right IT infrastructure, recruit skilled personnel, and collaborate with trusted external partners. Moreover, having efficient systems to address DDQs promptly and accurately is crucial. Ensuring they maintain robust cyber insurance policies is equally important. By proactively taking these measures, firms can not only ensure compliance but also effectively mitigate potential risks.

Understanding the evolving world of IT compliance for financial services firms is an ongoing conversation, not a one-time decision. Learn more about the compliance obstacles facing the financial services sector. Download Coretelligent’s complimentary whitepaper: How Financial Services Firms Can Manage Compliance.